WATCH THE VIDEO: The State of the Nation's Housing

In case you missed it, our State of the Nation’s Housing 2015 report was released by live webcast from the Ford Foundation in New York earlier this week, and featured a panel discussion with:

• Jim Zarroli, Reporter, National Public Radio (moderator)
• Chris Herbert, Managing Director, Harvard Joint Center for Housing Studies
• Paul Weech, President and CEO, NeighborWorks America
• Celia Smoot, Director of Housing, Local Initiatives Support Corporation (LISC)
• Lynn Fisher, VP of Research and Economics, Mortgage Bankers Association
• Don Chen, Director, Metropolitan Opportunity, Ford Foundation

Read the full report or try the interactive maps on the Joint Center website, and join the conversation on Twitter with #harvardhousingreport.

Homeownership Rates Drop to Historic Lows; Middle Class Feels the Strain of Rising Rents

The fledgling U.S. housing recovery lost momentum last year as homeownership rates continued to fall, single-family construction remained near historic lows, and existing home sales cooled, concludes The State of the Nation’s Housing report released today by the Joint Center (live webcast today @ Noon ET). In contrast, rental markets continued to grow, fueled by another large increase in the number of renter households. However, with rents rising and incomes well below pre-recession levels, the U.S. is also seeing record numbers of cost-burdened renters (view our interactive maps), including more renter households higher up the income scale.

Perhaps the most telling indicator of the state of the nation’s housing is the drop in the homeownership rate to just 64.5 percent last year. This erases nearly all of the increase from the previous two decades. In fact, the number of homeowners fell for the eighth straight year, and the trend does not appear to be abating.

The flip side of falling homeownership rates has been exceptionally strong demand for rental housing, with the 2010s on pace to be the strongest decade for renter growth in history. While soaring demand is often attributed to the millennials’ preference to rent, households aged 45–64 in fact accounted for about twice the share of renter growth as households under the age of 35. Similarly, households in the top half of the income distribution, although generally more likely to own, contributed 43 percent of the growth in renters.

The other byproduct of this surge in rental demand is that the national vacancy rate fell to its lowest point in nearly 20 years. Given the limited supply of rental units, rents rose at a 3.2 percent rate last year—twice the pace of overall inflation. To meet this demand, construction started on more multifamily units in 2014 than in any year since 1989, and if job growth continues to pick up, we could see even more demand, as young adults increasingly move out of their parents’ homes and into their own apartments.

Even before the Great Recession, the number of cost-burdened households (those paying more than 30 percent of income for housing) was on the rise. But while the cost-burdened share of homeowners began to recede in 2010 (because some homes were lost to foreclosure, and low interest rates helped other homeowners reduce their monthly costs), the cost-burdened share of renters has held near record highs. In 2013, almost half of all renters had housing cost burdens, including more than a quarter with severe burdens (paying more than 50 percent of income for housing).

But perhaps most troubling, cost burdens are climbing the income ladder, affecting growing shares of not just low-income renters but moderate- and middle-income renters as well. The cost-burdened share of renters with incomes in the $30,000–45,000 range rose to 45 percent between 2003 and 2013, while one in five renters earning $45,000–75,000 are now cost-burdened as well. While affordability for moderate income renters is hitting some cities and regions harder than others, an acute shortage of affordable housing for lowest-income renters is being felt everywhere. Between the record level of rent burdens and the plunging homeownership rate, there is a pressing need to prioritize the nation’s housing challenges in policy debates over the coming year if the country is to make progress toward the national goal of secure, decent, and affordable housing for all.

Addressing the Silent Housing Crisis

by Chris Herbert
Managing Director

Yesterday the newly-launched J. Ronald Terwilliger Foundation for Housing America’s Families released The Silent Housing Crisis, a white paper documenting the significant housing challenges facing the country and making a call to action by the nation’s political leaders. The paper presents a succinct and compelling portrait of the doleful state of housing affordability in the country, the worrisome drop in opportunities for homeownership, and the demographic forces that are likely to exacerbate these problems absent efforts to reverse these trends.

The Foundation is right to label housing affordability a national crisis, particularly among renters. At last count, nearly half of all renters were cost-burdened, spending more than 30 percent of their income on housing, and more than one in four were severely burdened, devoting more than half of their income to rent. This translates into 21 million cost-burdened households, including 11 million with severe burdens. Low-income households in this situation are forced to make painful tradeoffs between housing and other fundamental necessities of life; among households in the bottom expenditure quartile, those with severe housing cost burdens spend 40 percent less on food, 70 percent less on healthcare, and 49 percent less on retirement savings each month (Figure 1).

Notes: Low-income households are in the bottom quartile of all households ranked by total spending. Moderate (severe) burdens are defined as housing costs of 30-50% (more than 50%) of household income. Households with zero or negative income are assumed to have severe burdens, while renters paying no cash rent are assumed to be without burdens.
Source: JCHS tabulations of US Bureau of Labor Statistics, 2013 Consumer Expenditure Survey.

Housing affordability has been steadily worsening for years, but the last decade saw the situation go from bad to worse, leading to today’s crisis situation (Figure 2).  In 1960 the share of renters with cost burdens was roughly half today’s levels. Amazingly, half of the increase over the past fifty years has occurred since 2000 as falling real incomes have combined with rising real housing costs to put housing out of reach for ever more families and individuals. And there’s no prospect of meaningful improvement ahead as incomes have yet to rebound from years of declines, and surging demand for rental housing is outpacing developers’ ability to build new homes.

Notes: Moderate (severe) burdens are defined as housing costs of 30-50% (more than 50%) of household income. Households with zero or negative income are assumed to be severely burdened, while renters not paying cash rent are assumed to be unburdened. 
Sources: JCHS tabulations of US Census Bureau, Decennial Census and American Community Surveys.

Notably, as our State of the Nation’s Housing report to be released next week documents, the largest deterioration in rental affordability has occurred among those making between $30,000 and $45,000, particularly in higher cost markets. But the problem is most extreme among the lowest-income households. Among those earning less than $15,000—which is equivalent to working year-round at the federal minimum wage—roughly three-quarters of households have severe cost burdens. Households at this income level households would have to find rentals going for $375 a month or less to stay within the standard affordability guideline, so it is not surprising that so many are cost-burdened. On its own, the private sector simply cannot provide housing at such low rents. As a result, there is much less variation in the extent of cost burdens among these lowest income families across markets—those in Detroit are as likely to be severely burdened as they are in San Francisco.

If the housing affordability crisis is silent, it’s not for lack of research that documents the extent of the issue. In just the last month, analysis by the Urban Institute, the National Low Income Housing Coalition (NLIHC), and NYU’s Furman Center have all documented the astounding extent of affordability challenges across the county.  The Urban Institute’s Housing Affordability Gap report finds that, nationwide, for every 100 extremely low-income renters there are only 28 units that are affordable, in adequate condition, and not occupied by higher income households. NLIHC’s Out of Reach report finds that there is not a single state in the country where someone working year-round at the federal minimum wage can afford a moderately priced two-bedroom rental. Focusing on 11 large cities, the Furman Center’s report drives home the point that these challenges are evident in a diverse range of cities, finding that even in the most affordable cities low-income renters could afford no more than 11 percent of recently available units.

Adding to these numerous efforts to quantify the extent of the problem, the Enterprise Foundation’s Make Room campaign brings this raw data to life by telling the compelling stories of families across the country who are struggling with severe rent burdens—and the very real consequences it has for their finances and their ability to get a foothold in the middle-class.  

While the absence of affordable housing has largely been a silent crisis, there does seem to be growing public awareness. The MacArthur Foundation’s latest How Housing Matters survey finds that a majority of the public (60 percent) identifies housing affordability as a very or fairly serious problem in America today. And three quarters agree that it is very challenging for a family of four with income under $24,000 to find affordable housing. But the survey also finds that only 39 percent of the public agree that the federal government should be involved in addressing housing affordability issues.

Given the magnitude and extent of the housing affordability crisis and the growing awareness of these issues, what seems to be missing is the political leadership needed to identify the lack of affordable housing as a national challenge and to make a case for action by the public sector.  The mission of the new Terwilliger Foundation is to foster engagement with this issue among political leaders from both sides of the aisle and to jump start the policy debate by identifying practical suggestions for how reform of federal efforts can better address the country’s housing needs. It is a laudable effort and, with growing evidence of the extent and persistence of the housing crisis, hopefully one that will gain traction in the upcoming Presidential election season.

Homeownership and Affordable Housing a Key Part of Upward Mobility, but Hard to Come By

by Jennifer Molinsky
Senior Research Associate

Earlier this week, the MacArthur Foundation released the results of its third annual How Housing Matters survey. Conducted by Hart Research, the survey of 1401 adults identifies a strong belief in the importance of stable, affordable housing to achieving a middle class lifestyle. But affordability challenges that respondents have experienced in their own lives, and see in their communities, contribute to a sense of pessimism about Americans’ chances of social mobility, and a majority still feels that the country is in the midst of the housing crisis that began 8 years ago.

Several findings resonate with our recent work at the Joint Center. As our forthcoming State of the Nation’s Housing report will show, the persistent problem of housing affordability continues to cause households to make difficult trade-offs. Over half of survey respondents reported making sacrifices in the past three years in order to pay for housing. The most common was to take on a second job or work more hours. Worryingly, a number of other trade-offs bode ill for peoples’ futures: many respondents reported that they have stopped saving for retirement, are accumulating consumer debt, and are cutting back on food and healthcare in order to meet housing costs. These stop-gap measures, necessary to ensure the rent or mortgage is paid, may add to financial and health strains later on. Renters, cost-burdened/distressed owners, younger adults, minorities, lower-income respondents, and city-dwellers are most likely to have made at least one trade-off in the past three years.

The survey also explored beliefs about upward mobility and found that, particularly for those with lower incomes, stable, affordable housing or owning a home is seen as one of the most important factors in achieving a middle class lifestyle (Figure 1). But a majority think that finding quality, affordable housing in their own community to rent or buy is challenging. And across age, race, and income levels, respondents expressed significant pessimism about the chances of rising from a lower economic class to the middle class, and believe it is harder for younger people today to save for retirement, own a home, find stable, decent-paying employment, and have a stable, affordable housing situation. Fully 79 percent think that middle class people fall into a lower economic class more frequently than the other way around.

Source: How Housing Matters, 2015, Hart Research &  MacArthur Foundation

One of the least optimistic groups of respondents were those aged 54-64, 85 percent of whom thought that downward economic mobility is more likely in today’s world than upward mobility.  This group was the most likely age cohort to see housing affordability as a serious problem in the nation. As our own research points out, those aged 50-64 were hit particularly hard in the housing crisis; as a whole, the age cohort’s homeownership rate declined by 5 percentage points from its 2005 peak, many saw a loss of wealth and have been living with stagnating wages, and the group has higher levels of housing and consumer debt than in the past. Member of this group who are housing cost burdened (paying more than 30 percent of their income on housing) make difficult trade-offs including forgoing retirement savings – again setting up the potential for greater difficulties in the future.

Though the 50-64 year olds are most likely to view housing affordability as a serious problem, their worries are shared with the other age cohorts surveyed in How Housing Matters. Sixty percent of all respondents think that affordable housing is a serious problem in the nation today, and 61 percent believe we are still in the midst of a housing crisis – with one in five thinking the worst is still to come.

As we head into a presidential election season, skepticism about the ability of Washington to intervene effectively, as well as ideological beliefs about the government’s role in solving this problem, present some clear hurdles to making affordable housing part of the national discussion. Over half of respondents (53 percent) believe that housing affordability is not the responsibility of the federal government. Follow-up interviews revealed that many in this group who see housing affordability as a serious problem are unclear about what government can do.  They also lack confidence that federal intervention would be effective, or have ideological concerns about federal involvement. Yet the survey also identifies some opportunities. Though just over half stated that housing affordability is not a federal responsibility, 49 percent of respondents feel that housing affordability should be a very or fairly high priority in Washington and slightly more believe it should be a very/fairly high priority at the state and local levels – yet only 14 percent believe it already is (Figure 2).

Source: How Housing Matters, 2015, Hart Research &  MacArthur Foundation

Among the reasons for ensuring that housing is a higher priority on the policy agenda, respondents found that the relationship between housing and children’s health and well-being among the most compelling: the belief that living in safe neighborhoods in quality, stable housing helps children’s mental, social, and academic development and allows families to spend more on their education and enrichment. Linking housing affordability to children’s well-being – as well as highlighting the sacrifices made by millions of cost-burdened elderly and low-income households – may help make the case that housing does indeed matter. 

House Appropriations Bill Underfunds Housing Assistance Programs

by Irene Lew
Research Assistant

The FY 2016 appropriations bill covering spending for Transportation, Housing and Urban Development, and Related Agencies (THUD) is headed to the full House for debate this week. Approved on May 13 by the House Appropriations Committee on a party-line vote, the FY 2016 bill provides $42 billion for HUD, which is $1 billion above the FY 2015 enacted level but still $3 billion below the amount requested in the President’s budget. Due to the Congressional Budget Office’s projection of a $1.1 billion decline in revenue from FHA insurance premiums in FY 2016 and a shift to a calendar-year funding cycle for the project-based rental assistance program, HUD had required an increase of about $3 billion in FY 2016 just to maintain rental assistance for the millions of families that currently receive it. However, the bill has approved funding for rental housing assistance programs that are well below levels requested in the President’s budget (Figure 1).

Source: House Appropriations Committee on Transportation and Housing and Urban Development

The proposed funding level for HUD programs in the appropriations bill reflects the continuing impact of spending caps on non-defense discretionary programs that had been established as part of the 2011 Budget Control Act. As OMB Secretary Shaun Donovan points out, real budgeted discretionary spending (referring to programs that are funded on an annual basis and exclude entitlements such as Medicaid and Social Security) now stands at its lowest level in a decade. The THUD bill slashed funding for the public housing capital repairs program by nearly $200 million from the FY 2015 appropriation. Furthermore, despite a 3 percent funding increase over the FY 2015 level for housing choice vouchers, this increase does not restore the 67,000 vouchers lost to sequestration in 2013 and the amount allocated for renewals falls nearly $183 million short of the amount that HUD estimated it would need for renewing assistance for all current voucher holders in FY 2016.

Furthermore, of concern for many affordable housing advocates is the proposed transfer of all the funding set aside for the National Housing Trust Fund (HTF) in FY 2016—an estimated $133 million— to the HOME program in order to account for a 15 percent reduction in the appropriation for HOME. Although the Committee voted to maintain HOME funding at the FY 2015 level of $900 million, 85 percent of this amount ($767 million) will be directly appropriated for the program while the remainder will be transferred from the HTF, which was finally being capitalized after a long delay. This transfer puts the HTF at risk because the bill forbids Congress from putting any other money into the HTF following the transfer.

The capitalization of the Trust Fund would have supported the expansion of rental housing targeted at  households with extremely low incomes (up to 30 percent of Area Median Income), the first new production program aimed at this group since the creation of the Section 8 program in 1974.  Existing affordable housing production programs like HOME and the Low Income Housing Tax Credit (LIHTC) program have higher income-qualifying limits than those established by the HTF, with income eligibility capped at 80 percent of Area Median Income (AMI) for HOME and 60 percent of AMI for the LIHTC program. In order to make tax credit units affordable to extremely low-income tenants, units in these properties often require layering of additional rental subsidies in the form of vouchers or project-based assistance, according to a 2012 report from NYU’s Furman Center. Furthermore, while state housing finance agencies—the entities responsible for allocating housing tax credits—may provide incentives for developers to set aside a certain portion of LIHTC units for extremely low-income households, HOME does not provide any specific set asides for the lowest-income renters.

Unlike HOME and other federal housing assistance programs, the HFT was created with the intention that it would provide a predictable pool of funding not subject to the uncertainty of annual appropriations. The potential elimination of the NHT in the current House appropriations bill comes at a time when the need for housing that the lowest-income renters can afford has never been greater. Rental assistance enables households with the lowest incomes to access safe, decent, and affordable housing by making up the difference between private market rents and what these families can afford to pay. Yet the capacity of federal, state and local governments to provide aid continues to lag behind a growing need. HUD’s latest Worst Case Needs report estimated that while the share of those with assistance has remained essentially unchanged from a decade ago, with a third of eligible households receiving rental assistance in 2013, (Figure 2), overall numbers of extremely low-income renters have increased by 22 percent over the past decade, from 9 million in 2003 to 11 million in 2013.

Note: Extremely low-income refers to households with incomes not exceeding 30 percent of Area Median Income.
Source: HUD, Worst Case Needs Reports to Congress. 

In this tight budgetary climate, the preservation of the existing subsidized stock in the private market, especially those units assisted through the LIHTC program, remains a key part of addressing the housing affordability crisis over the coming decade. Although the LIHTC program has higher income-qualifying limits than public housing or other rental assistance programs, a recent HUD report noted that a sizable share of LIHTC households—46 percent—have extremely low incomes. Tabulations of the most recent data from the National Housing Preservation Database show that over 1.2 million (58 percent) of the nearly 2.2 million total federally assisted units (excluding units subsidized through housing choice vouchers and public housing units without additional project-based rental assistance) with affordability requirements expiring between 2015 and 2025 are subsidized through the LIHTC program (Figure 3). As I pointed out in a previous blog post, units subsidized through the LIHTC program are at lower risk of being removed from the affordable stock and most continue to operate as affordable housing without new subsidies even when tax credit properties reach the end of their affordable-use compliance period. Recent HUD initiatives such as a pilot program to expedite approvals for the purchase or refinance of LIHTC properties through FHA’s Section 223 program will also help preserve the affordability of existing tax credit properties, with estimated lending for FHA-insured LIHTC projects doubling from roughly $900 million to $1.8 billion last year. 

Notes: Other units include those funded by HOME Rental Assistance, FHA insurance, Section 202 Direct Loans, USDA Section 515 Rural Rental Housing Loans. Date of expiration refers to latest date of any subsidy expiring in property. Data includes properties with active subsidies as of February 20, 2015. 

Source: JCHS tabulations of National Housing Preservation Database, Public and Affordable Housing Research Corporation and National Low Income Housing Coalition.